Savers told to shop around as banks pay zero interest on large deposits

Australia's major banks have all taken an axe to savings rates since the start of September.

Australia's major banks have all taken an axe to savings rates since the start of September. Photo: TND

Savers have been warned to hop aboard the “introductory rate merry-go-round” or risk receiving zero interest on their hard-earned deposits.

The clarion call comes after Xinja became the first Australian bank to say it would no longer pay interest (of 1.5 per cent) on deposits above $150,000.

A handful of global investment banks including UBS and Credit Suisse have also refused to pay interest to wealthier clients during the pandemic.

But less well-off customers are getting a raw deal, too.

Australia’s Big Four banks all slashed their savings rates in September.

ANZ cut the bonus rate on its Progress Saver to 0.7 per cent and the introductory rate on its Online Saver to 0.65 per cent – and none of the Big Four banks are paying an ongoing base rate above 0.05 per cent.

That means savers will only earn $5 in annual interest on a $10,000 deposit.

Canstar group executive Steve Mickenbecker told The New Daily it would be “unsurprising” if other neobanks followed Xinja’s lead and paid zero interest on large deposits – especially if the RBA cuts rates in November.

But he expects the major banks won’t follow suit.

“It’s no surprise the big banks have stopped at 0.01 or 0.05 [per cent] for their base rates rather than going to zero, because zero is that kind of magical round number that says: ‘Oh, I’m getting nothing now’,” Mr Mickenbecker said.

Even so, the spending power of most savers will be going backwards.

This is because most interest rates are less than the rate of inflation, which refers to the speed at which average prices in the economy are rising.

Mr Mickenbecker said although few savings products match inflation – he cited RaboBank’s High Interest Savings Account as one exception – savers can minimise the gap in one of two ways.

They can either hop between providers every three or four months and capitalise on promotional rates, or find a provider that has a healthy bonus rate.

And this can be done at minimal cost, he said, as most savings products charge no fees for setting up and switching accounts.

“If a savings account works for you, be prepared to switch often, or be prepared to restrict your flexibility with terms on bonus rates,” Mr Mickenbecker said.

“With most banks these days, you can open your account and transfer your money online and it happens near-instantaneously, and you shouldn’t even lose a day’s interest.”

As it stands, Rabobank’s High Interest account pays 2 per cent interest over the first four months, while Heritage Bank and the Bank of China’s Online Saver accounts pay 1.6 per cent interest over the same period.

Meanwhile, customers with ME Bank’s Online Savings Account can attract bonus interest of 1.45 per cent if they also have an Everyday Transaction Account and make four tap and go purchases every month.

ING also pays an ongoing rate of 1.5 per cent interest on deposits up to $100,000 in its Savings Maximiser account.

But to qualify for this rate, customers must also have a transaction account with ING, and deposit at least $1000 or more per month into that account and make at least five card purchases every month.

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